2015 (11) TMI 973 - AT - Service Tax

Denial of CENVAT Credit - Demand of interest - Penalty u/s 78 - Held that - appellant discharged the service tax liability by way of cenvat credit, which otherwise would have been utilised for payment of dues, and hence the interest liability should be restricted to from the date the liability arose to the date of payment made through cenvat credit - Tribunal in the case of CCE, Mumbai vs. CEAT Limited 2010 (3) TMI 621 - CESTAT, MUMBAI , in Para 9 of the order, held that credit is to be restored. This decision of the Tribunal was upheld by the Hon ble High Court of Bombay, reported as 2013 (7) TMI 568 - BOMBAY HIGH COURT . - appellant discharged the service tax liability by way of cenvat credit, which otherwise would have been utilised for payment of dues, and hence the interest liability should be restricted to from the date the liability arose to the date of payment made through cenvat credit. - appellant is liable to pay interest from the date of liability of tax to the date of payment of same through cenvat credit. The same may be quantified by the adjudicating authority. - appellants were not aware of the amended provisions and there was no intention to evade tax. Hence, imposition of equivalent penalty under Section 78 of the Finance Act, 1994 is not warranted and the same is set-aside. - Decided partly in favour of assessee.

Summary

Issues:
Short payment of service tax due to incorrect valuation in ST-3 returns, utilization of cenvat credit for payment, imposition of penalties under Section 78 and Section 77 of the Finance Act, 1994, request for re-crediting cenvat account, liability of interest on tax payment.

Analysis:
The case involved a discrepancy where the appellant had underpaid service tax due to incorrect valuation in their ST-3 returns for the quarter July 2011 to September 2011. The actual gross value of supply of tangible goods services was significantly higher than what was reported, resulting in a short payment of service tax. The appellant had utilized cenvat credit to pay part of the differential tax amount, which was disputed by the department. A show cause notice was issued, and the adjudicating authority confirmed the demand along with interest and penalties under Section 78 and Section 77 of the Finance Act, 1994.

During the appeal process, the appellant argued that they had rectified the payment method by subsequently paying the tax amount in cash and requested re-crediting of the cenvat account. The appellant contended that they were unaware of the amended provisions in July 2011 and had no intention to evade tax. The department, represented by the Authorized Representative, maintained that there was an intention to evade tax due to the initial non-disclosure in the ST-3 returns.

The Tribunal referred to precedents where re-crediting of cenvat account was allowed upon rectification of payment method. The Tribunal also considered the liability of interest on the tax payment made through cenvat credit, restricting it to the period from the date of liability to the date of payment. The Tribunal agreed with the appellant's argument that penalties under Section 78 of the Finance Act, 1994 should be set aside due to lack of intention to evade tax and unawareness of the amended provisions.

In conclusion, the Tribunal upheld the impugned order with modifications. The appellant was directed to pay interest from the date of tax liability to the date of payment made through cenvat credit. The penalties under Section 78 of the Finance Act, 1994 were set aside due to the appellant's lack of intention to evade tax. The appeal was disposed of based on the directions provided in the judgment.